At Least One Juice Processor Expected to Close

Saturday

Jul 5, 2014 at 11:23 PM

There's a death watch underway in the Florida citrus industry. The widespread expectation among Florida growers is that at least one Florida juice processor will shut down before the beginning of the 2014-15 citrus season in the fall.

By KEVIN BOUFFARDTHE LEDGER

There's a death watch underway in the Florida citrus industry. The widespread expectation among Florida growers is that at least one Florida juice processor will shut down before the beginning of the 2014-15 citrus season in the fall.Most frequently mentioned is the Indiantown plant operated by Louis Dreyfus Citrus Inc., a subsidiary of the French agriculture and energy company. Also mentioned less frequently is the Lake Wales plant operated by Citrosuco North America Inc., the U.S. subsidiary of Brazilian processor Citrovita Agro Industrial Ltd., that country's largest juice processor.In a Thursday email to The Ledger, Dreyfus declined to address directly its plans for next season."Louis Dreyfus Commodities has a strong presence in the citrus business in the U.S. and globally," the company said in the email. "We originate, process and merchandise orange juice to an international network of customers, whom we will continue to serve now and in the future."CitroSuco did not reply to calls from The Ledger."It's pretty straightforward economics," said Quentin Roe, CEO of his family's citrus business, Wm. G. Roe & Sons Inc. of Winter Haven, which includes a processing subsidiary, Blue Lake Citrus. "When you've got an industry infrastructure that can handle 200 million boxes of oranges and you're currently producing 100 million boxes, everybody doesn't get to play."Florida-based executives from both companies did not return calls and e-mail requests last week for interviews.Conventional wisdom in the Florida citrus industry has a spotty record for accuracy, but the logic is straightforward enough:Under attack by the devastating bacterial disease citrus greening, Florida citrus production has fallen by more than half and grapefruit production by nearly two-thirds over the last decade, and more declines are projected for the next 10 years. There's simply not enough fruit to support juice production at Florida's existing 19 processing plants. In the five-year period through the 2003-04 citrus season, the last one unaffected by greening or hurricanes, Florida orange growers produced an average 226.3 million boxes and 45.1 million boxes of grapefruit. The recently completed season saw orange production drop to 104.3 million boxes and grapefruit to 15.6 million.Annually, 95 percent of Florida oranges and more than 60 percent of grapefruit get processed to juice.Consolidation among juice processors seems not unreasonable given the shrinkage in the state's packinghouse just this year.In April, the Kennedy family auctioned off its 47-year-old Vero Beach packinghouse business, United Indian River Packers Inc., along with nearly 2,000 acres of land, including 850 citrus grove acres, ending nearly a century of the family's Florida citrus enterprise.In June, Greene River Packing Inc. and Leroy Smith Inc., announced a merger of their Vero Beach packinghouses. The new company, Greene-Smith Packing LLC, will operate out of the Greene River packinghouse.Figures on citrus processing capacity in Florida are not available, but Hugh Thompson, president of Cutrale Citrus Juices U.S.A. Inc. in Auburndale, a subsidiary of another Brazilian processor, estimated existing capacity at 220 million boxes, or more than twice needed to process the 2013-14 crop. Thompson declined to comment on whether Cutrale and other Florida plants can continue to operate profitably at 50 percent capacity.Other citrus officials are divided on that question.A processing plant has certain fixed costs, such as building and machine maintenance, quality control and other management costs, that vary little whether it runs 1,000 or 1 million boxes of fruit, Roe said.As juice production declines, those fixed costs get spread over a smaller number of gallons, which inevitably gets passed on to the consumer in higher retail prices, he added."Suddenly, you're not the low cost producer any more," Roe said.But the economics of making orange juice differs from manufacturing widgets, said Tom Spreen, professor emeritus of agricultural economics at the University of Florida in Gainesville, and the Florida processing industry doesn't operate by the same economic rules.For one thing, Spreen said, processors and fresh fruit packinghouses operate only about half a year, the length of the harvesting season.Moreover, one of a processing plant's biggest fixed costs is leasing and running extractors that squeeze juice from the fruit, he added. Because the machines are leased, plants can downsize more readily as citrus production falls."Processors have taken steps to run at lower levels of production," said Bob Behr, chief operating officer at Florida's Natural Growers in Lake Wales, the third largest U.S. orange juice processor. "As the crop continues to go down, we will continue to run."There's already been a substantial downsizing of processors and packinghouses in response to market forces that pre-date greening, such as the 37 percent decline in U.S. retail OJ sales that began in 2000-01, Spreen said. The market also has moved away from frozen concentrated orange juice and reconstituted OJ from concentrate.According to the Florida Department of Citrus, the number of citrus processors declined by half in the early part of the last decade from 42 companies in 2000-2001 to 21 in 2006-2007.Most of the companies that closed during the last 13 years produced mostly frozen concentrate, which has declined more rapidly in sales compared to not-from-concentrate (NFC) orange juice, Spreen said.Of the remaining producers, the "Big Seven" processors are involved mainly in NFC production, he said. They are Florida's Natural; Tropicana Products Inc. in Bradenton, the largest U.S. processor; Cutrale (which processes for Minute Maid); CitroSuco (which processes for Tropicana); Dreyfus; Peace River Citrus Products Inc. in Arcadia; and Southern Gardens Citrus Processing Corp. in Clewiston."It's not clear to me a smaller crop takes out one of the seven bigger guys," Spreen said. "When those go, now you have economic implications for growers. Now you've got less competition for fruit."Spreen did not discount that some of the remaining 12 smaller processors could go out of business with further crop declines.Behr agreed that even significantly lower orange production in future seasons doesn't necessarily spell impending doom for processors of NFC OJ, Florida's premium citrus product. The Florida's Natural brand is an entirely NFC line. At current sales levels, about 75 million boxes of oranges will be processed to meet the U.S. demand for NFC orange juice, Behr said. As the state's orange crop declines, frozen concentrate processors will feel the pinch before NFC companies do."The economics of running Florida fruit to concentrate are not that good right now," Behr said. "That's where the pressure is now."

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